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Analysts: Corruption in China Thrives, But Not Likely to Threaten Stability

Corruption is one of the top problems that new leaders of the Chinese Communist Party will face when they take over later this year. Some analysts say the problem is so widespread that it threatens the long-term prospects for China's economic health, and undermines popular support for the Communist Party.

China's leaders are well aware that corruption is pervasive nationwide. The country has been engaged in an anti-corruption campaign for much of the last decade. Several party and government officials at the provincial and municipal level have been convicted of taking bribes or stealing government funds. Some have been imprisoned, and some have been executed.

The co-director of the China program at the Carnegie Endowment for International Peace, Minxin Pei, says the problem of corruption is growing. "I think if there is going to be any single factor that's going to derail both China's modernization progress and also the communist party's rule, it's going to be corruption," Mr. Pei said.

By his own estimate, Mr. Pei says corruption, in the form of bribes or stolen funds, accounts for about three or four percent of China's gross domestic product. He says the main forms of corruption include kickbacks from public projects, diversion of government money into privately controlled slush funds, theft of assets from state-owned enterprises and sale of land-use rights below market prices.

Mr. Pei, who has written extensively about political and economic developments in China, says this bleeding of the government and state banking system, is serious, but not what he calls life-threatening for the country. "It does threaten the long [term] prospects of China's continued growth. If the problem remains untreated, I do not foresee a collapse in five years. I do see that China will be totally unable to achieve its ambitious economic goals," Mr. Pei said.

Harvard University Economics Professor Dwight Perkins says there is no doubt that China's leaders are concerned about corruption. But Professor Perkins, who directs the Asia Center at Harvard, says corruption is not likely to cause the government to collapse.

"There's no question that the level of corruption is at a level that undermines the political support for the Communist Party and the regime. How seriously it undermines it, it's very hard to judge. China is by no means the most corrupt country in the world," Mr. Perkins said.

But Minxin Pei says Transparency International, a group that monitors world corruption, ranks China in the bottom quarter of nations, along with Burma, Indonesia, India and Nigeria.

Mr. Pei also says the Chinese government's anti-corruption campaign may appear serious and successful on the surface, with executions of corrupt officials regularly announced in the media as a warning and deterrent to others. "But these are mostly symbolic gestures that do not address the roots of corruption. If you look at actual enforcement efforts, you will be surprised at how lenient and, therefore, how uncredible the government's efforts against corruption are," Mr. Pei said.

Mr. Pei says, based on the government's own information, only about six percent of those people found to have engaged in corruption are actually punished.

Professor Perkins agrees that anti-corruption campaigns have not been very effective at controlling the problem. He says controlling corruption requires two courses of action. In addition to severe and immediate punishment, he says, a government must reduce the opportunities for corruption.

"And a lot of the opportunities for corruption today are really a leftover from all of the regulatory elements that existed from the old planned economy regime. And, so, you have lots of discretionary decision-making by low level and medium level and high level government officials. And, all of that discretion allows them to say 'yes' and 'no' to a whole wide range of things, and to charge for saying 'yes', to get people to pay them for saying 'yes,'" Mr. Perkins said.

Professor Perkins says China needs to move toward a more pure market economy, in order to reduce those opportunities for corruption.

During the 1990s, Minxin Pei says, there was a dramatic increase in the purchase of public offices, collusion among middle and senior ranking officials in counties or cities, and capital flight. He says the World Bank estimates that between $20 billion and $30 billion a year is taken out of China illegally.

Professor Perkins says, it is true that a lot of money leaves China, but not all of it is illegal. He says some of it goes to set up legitimate businesses in Hong Kong or elsewhere. Much of it may be unrecorded, he says, but that may be to avoid taxes, and not because it was gotten through corrupt means. Professor Perkins also points out that China receives more than $40 billion of direct foreign investment each year, which more than offsets the outflow of capital